In a previous article, we shared some mortgage rate forecasts for 2018 gathered from three expert sources. Today we will look at three more mortgage industry predictions for 2018, published recently by the economic research team at Freddie Mac.
2018 Forecast for Home Loans, Refinancing, Equity Levels
In September 2017, Freddie Mac published an updated outlook for the U.S. housing market and broader economy. Among other things, this report offered three specific predictions for mortgage loans and the lending industry in 2018.
Their economists expect these trends to drive the mortgage market in 2018:
- Purchase loan volume will increase
- Rate refinance activity will cool
- More borrowers will tap their home equity
They expect to see an increase in the number of purchase loans for home buyers, and a decline in mortgage refinancing activity. That second prediction is not surprising, since their economists have also predicted a gradual rise in mortgage rates over the coming months. (When rates rise, refinancing tends to drop off.) Their prediction for an increase in cash-out refinancing also makes sense, given the rise in home prices seen over the last couple of years.
Prediction #1: Purchase mortgage volume will increase.
Freddie Mac’s first prediction for the mortgage market in 2018 is that we will see an increase in the number of purchase loans (used by home buyers). They expect purchase origination volume to be higher in 2018 than it was in 2017.
Specifically, the company predicts a rise in the number of new home sales, while exiting home sales will remain steady. They expect this to drive an increase in overall purchase loan volume in 2018.
To quote the report:
“Year-to-date total home sales are the highest since 2007. Existing home sales are unlikely to increase much going forward … Growth in home sales will be primarily driven by new homes sales, which should continue to grind higher with single-family construction. We forecast total home sales (the sum of new and existing home sales) to increase about two percent from 2017 to 2018.”
Prediction #2: Rate refinancing activity will decline.
Freddie Mac’s second mortgage industry prediction for 2018 has to do with home refinance loans. Interest rates are expected to inch upward over the coming months, and this kind of trend usually puts a damper on mortgage refinancing activity.
“We have seen the mortgage market shift away from a refinance-dominated market to a more purchase-oriented market,” the report stated. “That trend will likely continue in 2018. We forecast that the refinance share of mortgage activity will decline to 25 percent, the lowest annual refinance share since 1990.”
This mortgage prediction is closely related to the first one, regarding purchase loan increases. Essentially, Freddie Mac’s economists expect the mortgage market to shift away from refinancing (to some extent) and toward purchase loans.
Prediction #3: More homeowners will tap into their equity.
Home prices in most U.S. cities have risen steadily over the last couple of years. As a result, many homeowners are enjoying higher levels of equity (or ownership) in their homes. This could lead to an increase in the number of homeowners who use “cash-out” refinancing in 2018. That’s another key mortgage industry prediction from Freddie Mac.
To quote the report: “Homeowner equity has increased to $13.7 trillion in the first quarter of 2017. As home prices keep rising, cash-out activity is likely to also rise.”
This mortgage market prediction is not surprising, given the rise in house values of the last couple of years. According to the real estate information company Zillow, home prices nationwide rose by around 7% over the last 12 months (Oct. 2016 - Oct. 2017). Some cities with hot real estate markets have seen even bigger gains. This could lead to more and more homeowners tapping their equity for cash.
Disclaimer: The opinions, estimates, and mortgage industry predictions presented above were provided by Freddie Mac’s Economic & Housing Research group and do not necessarily represent the views of the publishing team at QualifiedMortgage.org. We have compiled these mortgage loan forecasts for 2018 as an educational service to our readers.